Determining how to invest money isn’t always an easy task. Many individuals opt to work with an investment advisor to set up a plan and keep it moving in the right direction. There are many factors that these advisors have to consider. One of these is your risk tolerance.
Risk tolerance is a core concept in investing that reflects how much potential loss you’re comfortable accepting. This is typically assessed through various factors, including financial disclosures, questionnaires and conversations. It’s critical that the advisor balances your risk tolerance with growth potential when trying to determine how to handle investments.
What happens when risk tolerance isn’t respected
Investment advisors should make recommendations to you that are aligned with your financial goals and risk tolerance. Regulatory framework emphasizes that these recommendations must be reasonable and tailored to your situation, including your investment timeline.
When risk tolerance isn’t considered, there’s a chance that you might be encouraged to make investments that lead to a loss you aren’t comfortable with. While it’s true that loss is possible with any investment, the magnitude of the loss might be considerable, and it likely could have been avoided if the advisor had remained in line with your known risk tolerance.
It’s critical that you keep an eye on how your investment portfolio is being handled. This gives you a chance to act if you notice anything amiss, including your advisor taking risks that you aren’t comfortable with.
All investment advisors have a fiduciary responsibility to their clients. This means that they must do what’s in their client’s best interests and not their own. If your investment advisor isn’t meeting their fiduciary duty to you, it might be best to work with someone who’s familiar with these matters so you can determine how to move forward.
